Hi JDY,
I've only been in London twice, both in 2002 (just was there over the holidays..) so I don't have a ton of knowledge to give you - but both times I stayed in Kensington and for me it worked out really well. I found being on the Picadilly Line (tube/subway) very convenient, plus the Gloucester Road Station also has connections for the District and Circle lines. Here's a great website for planning any travel on the underground before you go:
www.thetube.com
Now as far as hotel - in late December I stayed in the Millenium Bailey's, just next door to the Gloucester Road Tube stop. I found it very convenient and while I had a smaller single room, it was clean and comfortable and the staff was very accomodating. I paid approx £65 per night (breakfast included), which may or may not be in your price range (approx US$100-105). You can see the hotel at:
http://www.millenniumhotels.com/mc/hotel_description.jsp?hotelId=41
Another option is to try priceline.com -- a friend and I did that when we went to London last March. The good thing about priceline is that you can specify which part of the city you want to stay in - this gave me some peace of mind that I wasn't going to be staying on Skid Row while there

We lucked out and got a room at the Radisson Edwardian Vanderbilt on Cromwell Street, which is also near the Gloucester Road station. We paid I believe about £75 per night (approx US$120)which was great since we split the cost. However, I'm sure that there are even better deals to be had on priceline - it all depends on your preferences.
If you want no-frills hotel experience, you could try the Hotel Ibis chain. I stayed in one the night before heading to Paris, but I felt £50/night was a bit much for what I felt was like staying in a Motel 6. (
www.ibishotel.com)
Re: airport transfers - since I was right on the Picadilly Line for both my London stays, I just took the tube. The airport is right on the Picadilly Line and it only took me approx 40-45 to/from the airport from where I was staying.
If you haven't picked up a travel book yet - I can suggest Lonely Planet's guide to London. I found it very insightful, had a ton of information and was laid out well. You can check the book out at:
http://www.amazon.com/exec/obidos/t...002-1353990-8370469?v=glance&s=books&n=507846
Hope this helps a little bit -- good luck with your travel plans & have a great time!